Tuesday, December 16, 2008

The Labor Department reported that energy prices took another tumble in November, pushing the Consumer Price Index down 1.7 percent for the month and bringing the year-over-year change to a docile +1.1 percent.As might be expected, this has kicked off another round of "deflation" talk, the Associated Press noting that this latest report may put pressure on the Federal Reserve "to act decisively to guard against a debilitating bout of deflation".

Oh dear!

While the curve above is menacing looking indeed, the recent dis-inflation continues to be a story of plunging energy prices only, down 17 percent last month after a drop of 8.6 percent in October, and now 13.3 percent below year-ago levels.

Elsewhere, prices continue to rise both on a month-to-month and year-over-year basis, food prices gaining 0.2 percent in November, now 5.9 percent higher than a year ago.And, of course, amid the sharpest decline in home prices since the Great Depression, the fatally flawed measure of the cost of "Shelter" rose 0.2 percent last month and is up 2.2 percent on a year-over-year basis.

Much more will be known in the months ahead, after the recently lower energy prices work their way through the system.

Also from Washington D.C. this morning, the Commerce Department reported(.pdf) a dramatic decline in housing starts and permits for new home construction, both falling to record lows.Home builders started 18.9 percent fewer homes in November, down to an annualized rate of just 625,000 units from October's rate of 771,000, the lowest level since record-keeping began in 1959. On a year-over-year basis, housing starts are down 47 percent.

Declines were seen in all regions of the country led by a plunge of 34.6 percent in the Northeast, followed by declines of 23.1 percent in the Midwest, 16.8 percent in the West, and 15.6 percent in the South.

Permits for new construction fell 15.6 percent in November, from 730,000 units to 616,000 units, down 48.1 percent from a year ago.

Since neither of these data series are adjusted for the increase in population, these figures are much worse than they appear.

This follows Monday's report by the National Association of Home Builders that their index of builder confidence was unchanged from last month's all-time record low of just 9. This index had been as high as 50 just a couple years ago.

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comments:

Isn't energy as likely to lead deflation like energy led inflation? I don't think there's any doubt that, in the short term, prices are falling, and falling more than the error prone government shows. I'm with you that inflation will continue to be the longer term problem, but right now it appears that there is deflationary pressure ... no?